What is Silvergate Exchange Network? Why is it Shutting Down?
Silvergate Bank shutting down Silvergate Exchange Network (SEN), a settlement layer for fast transfers of digital assets between the world’s largest crypto players, is a massive blow to the whole crypto infrastructure & will have a severe negative impact on market liquidity, and finally the prices of cryptocurrencies & tokens.
As a reminder, SEN is a settlement infrastructure for counterparties (exchanges, proprietary trading firms, market makers & hedge funds) onboarded with Silvergate Bank, that need real-time, secure, and low-cost transfer of digital assets, instead of going for settlement through slow & outdated fiat banking infrastructure, which can take several days.
Problems for Silvergate Bank arose due to the fact that the bank holds clients’ assets “on-balance-sheet”.
Unlike the publicly better-known Swiss crypto banks, Sygnum Bank and SEBA Bank AG – which are effectively custodians with a banking license – the deposits of Silvergate Bank clients are liabilities on the books, and with those deposits, the US crypto banks purchase assets, with the intention to earn income. Unfortunately, the bank run on US crypto banks caused mark-to-market losses and wiped out billions of profits.
To add further to the problems, on Thursday morning Silvergate reported it would delay filing its annual report. In an SEC filing, Silvergate said it needed more time to analyze the impact of regulatory inquiries and investigations as well as to let an independent auditor complete an audit. The shares of crypto banks sank as much as 45% following the news.
‼️It shouldn’t be a surprise that key crypto firms, such as Coinbase and Galaxy dropped Silvergate as their banking partner. Stablecoin issuers Paxos and Circle, Cboe’s digital asset exchange, and crypto exchanges Bitstamp and Gemini also suspended their partnerships with #Silvergate.
Crypto shadow banking is not just one player, like Sam Bankman Fried, hiding his intentions behind a computer, it is a network of players all bound together by an opportunity for profit, and we are seeing players being caught up in the contagion & collapse that started in summer of 2022.
What is Silvergate Exchange Network? Why is it Shutting Down?
Written by Anton Golub
Anton is a Strategic Advisor of Pazar, decentralized OTC marketplace. Anton founded & served as CEO of flovtec, Swiss market-maker providing liquidity solutions to digital asset exchanges, token issuers & protocols and offering investment products for professional & institutional investors. In addition, Anton is also a co-founder of Trust Square AG, a pre-eminent blockchain technology hub located in Zurich’s financial district. Furthermore, Anton co-founded Lykke Corp, a blockchain-powered exchange to trade all assets with zero fees, where he served as a Chief Science Officer. Prior to Lykke, he worked as a quantitative researcher at Olsen Ltd (successor to Olsen & Associates, founded in 1985), a boutique investment firm that pioneered the field of high-frequency trading.
As a Marie Curie Research Fellow at the Alliance Manchester Business School, Anton worked on high-frequency trading, market microstructure and flash crashes. In 2011, he became invited to participate in the Foresight Project. The Future of Computer Trading in Financial Markets, an international project on algorithmic trading funded by HM Treasury in the UK. Anton has also become involved in several research projects backed by the European Union (EU). And on the Supervisory Board for the BigDataFinance project funded through Horizon 2020. He has co-authored 13 academic papers and two books.
